China's Ping An Slashes ETF Costs in Echo of Vanguard's Approach

(Bloomberg) -- Ping An Insurance (Group) Co., the Chinese insurance giant, is trying the approach that Vanguard Group brought to the U.S. -- slashing costs for exchange-traded funds.

Ping An Fund Management Co., the fund arm, is launching an ETF tracking ChiNext startup stocks on Monday with a management fee of 0.15 percent, a quarter of the average for peer products. Its 0.05% custodian fee is less than half of the average, according to a prospectus and industry data.

Funds are chasing a larger share of a fast-growing $82.8 billion market. China has yet to see the intense price competition for ETFs that’s been occurring in other parts of the world, and there are no dominant players. Providers typically charge a 0.5 percent management fee and 0.1 percent custodian fee -- notably higher than the levels in the U.S., according to a report from SWS Research in January.

In the U.S., Vanguard more than tripled its ETF-market share to 26 percent in 2017 over the course of a decade by slashing costs, analysts led by Shanghai-based Ma Kunpeng wrote in a report last month.

U.S. Revolution

Vanguard, which amassed more than $5 trillion of client assets and revolutionized the U.S. investment industry by offering low-cost funds to millions of Americans, is hoping to have an “obvious cost advantage” compared to local competitors when launching products, its China head Charles Lin said in an interview last year.

“Technological upgrades and institutional demand prompted us” to introduce the product, the Ping An unit said in an e-mailed statement. ETFs with “appropriate, reasonable fees” can help attract more long-term money and support market stability, it said.

ETFs account for just 4 percent of China’s mutual fund industry even after growing an annualized 36 percent in the eight years through 2017, according to SWS Research.

The ChiNext ETF came after Ping An Fund raised the nation’s largest government-bond ETF in December, as the company taps growing demand for less risky products amid a slowing economy and rising financial instability. It currently has ETF products covering stocks and bonds and strategies including Smart Beta.

©2019 Bloomberg L.P.